Use the equation for the question(s) below.

Consider the following linear regression model:

(Ri

minus

rf)

= ai +

bi(RMkt

minus

rf)

+ ei

The ei in the regression:

A.

measures the market risk in returns.

B.measures the deviation from the

bestminusfitting

line and is zero on average.

C.

measures the historical performance of the security relative to the expected return predicted by the SML.

D.

measures the sensitivity of the security to market risk.